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The dollar could remain range-bound against the euro this week, and not even tomorrow's interest-rate decision by the Federal Reserve may be enough to budge it.

After shedding 11% of its value against the euro between mid-August and late November, the dollar has seen rather tight, albeit choppy trading in the year's final month.

Fed policy makers are likely to reduce interest rates by at least 0.25 percentage point tomorrow. The move could be negative for the dollar because it reduces investors' returns on dollar-denominated assets. But many analysts believe the currency has already been sold down enough, so further sharp weakening may be unwarranted.

Also, the Fed's recent, well-calibrated rate reductions have to some extent been viewed positively for the dollar, as they are seen as necessary medicine to keep the U.S. away from a recession.

"The downside risk to the dollar from Fed easing is limited...because the moves are helping to maintain confidence," said Lena Komileva, an economist who focuses on the Group of Seven leading industrial nations at Tullett Prebon. "The slowdown we're seeing in the U.S. economy is not a disorderly one."

The likely rate cut may even give the dollar a boost against Japan's currency, as lower Fed rates could boost stock markets, which in turn increases the risk appetite of currency investors. That drives them away from the low-yielding yen and toward higher-yielding currencies, including the dollar.

But a string of U.S. data due this week could reignite recession fears and provide some negative forces on the dollar.

With all this as a backdrop, look for the euro to trade between $1.45 and $1.47 this week, while the dollar is likely to move between 111 yen and 113 yen.

Late Friday in New York, the euro was at $1.4655, up from $1.4627 late Thursday, while the dollar was at 111.71 yen, up from 111.31 yen. The euro was at 163.71 yen, up from 162.81. The U.K. pound was at $2.0317, up from $2.0265, while the dollar was quoted at 1.1284 Swiss francs, down from 1.1302.

Analysts say the worst-case scenario for the dollar would be if the Fed cut rates by more than 0.25 percentage point.

Interest-rate futures contracts are only giving about 38% odds of a 0.5 percentage-point cut, which would put the benchmark U.S. rate at 4.0%. But if the Fed surprises markets with such a move, the dollar would likely see some short-term selling pressure.

It would also put the Fed's key rate on par with the European Central Bank's benchmark rate for the first time in three years. The ECB left its rates unchanged last week at 4.0%, and ECB President Jean-Claude Trichet, in comments to the press, maintained a hawkish stance on inflation, which appears to rule out any rate cuts in the near term.

source:online.wsj.com